A bill pending in the Massachusetts House of Representatives that would create restrictions on the use of non-compete agreements in the state is less draconian than legislation filed last year, but it is still flawed, critics say.

“If this passes, this imposes a very real, immediate need to go to our clients” to discuss whether non-competes make sense for them anymore, said Boston employment lawyer John R. Bauer. “It is a game-changer.”

Proponents of the legislation, which awaits scheduling in the House Steering Policy and Scheduling Committee, say creating some “procedural restraints” will help curb the abuse of non-competes without eliminating their use altogether.

“We’ve designed the legislation so corporate counsel who are involved in dealing with non-compete agreements … will have strong incentives to write agreements that don’t overreach,” said Rep. William N. Brownsberger, D-Belmont, who co-authored the bill with Rep. Lori Ehrlich, D-Marblehead.

Last year, Brownsberger and Sen. Patricia D. Jehlen, D-Somerville, jointly filed a bill to ban the use of non-competes, similar to an existing California law. But after pushback from business leaders, Brownsberger teamed up with Ehrlich, who had proposed her own legislation to merely limit the use of non-competes, to put forward what Brownsberger now calls a more “balanced” bill.

‘Confusing body of law’

The new measure establishes key benchmarks and “greatly increases the clarity of the landscape” in what has been “a confusing body of law,” said Brownsberger, a Belmont lawyer.

The bill’s provisions would:

• limit the duration of non-competes to a period of between six months and one year;
• create a $75,000 income minimum so workers earning less would be exempt from the agreements;
• require companies to create a distinct agreement that both parties sign instead of burying it in other employment documents; and
• force employers to pay attorneys’ fees if the court modifies an otherwise enforceable agreement.

Employers currently write their non-competes as broadly as possible because they assume workers will not challenge them or, if they do, the agreements will be narrowed — not tossed out — in court, Brownsberger said.

The new legislation “places the burden on the employer to be reasonable, and if they’re not reasonable, they can be challenged,” said Robert S. Mantell, president of the Massachusetts Employment Lawyers Association.

While the association has not taken a position on the current bill, Mantell said, MELA endorsed Brownsberger’s earlier proposal that did away with non-competes entirely even though an outright ban would eliminate a major part of the practice of employment attorneys, Mantell said.

“We’ve seen the devastation non-competes cause,” he said.

One practice the legislation hopes to rein in is the indiscriminate use of broad non-competes on lower-level workers who are intimidated into signing them.
Matthew T. Marx, an assistant professor at MIT’s Sloan School of Management who studies non-compete agreements, said he has found while such documents do bind workers to a company, they affect categories of employees in different ways. In the high-tech field, those with very specialized skills are twice as likely to be hamstrung financially by non-competes than those with more general skills like programmers. And non-competes are prevalent among less senior workers, he said.

In a national survey Marx conducted, he found seven of 10 workers subjected to non-
competes alleged that they were not told they had to sign the agreement until they had accepted the job offer and, in some cases, only learned of the non-compete on the first day of work.

“Employees are routinely blindsided by these agreements,” Marx said.

Some say non-competes stifle entrepreneurship and contribute to what Marx calls “a bit of a brain drain” locally.

“Why would they take a job here when they can go to California?” Mantell asked. “It’s a big disincentive for our best people to stay here.”

Well meant but…

While most say the proposed legislation has good intentions, some attorneys believe it could radically alter how non-competes are used statewide.

Bauer, a lawyer at Robinson & Cole, said the legislation addresses the very real problem of employers imposing unenforceable agreements on workers. Since the perception in Massachusetts is that most non-competes are looked upon favorably by the courts, Bauer said, many employers use them because they are inexpensive and “relatively easy to enforce.”

But much of the language in the bill is far too ambiguous, he said.
“This may have the effect of banning non-competes, since employers may just decide it’s not worth the risk,” Bauer said. “It’s going to take years for judges to apply the law and construe the law and for appellate courts to do the same.”
In the short term, the bill’s passage would generate a lot of extra work for employment lawyers.

“Every agreement that’s out there has to be re-evaluated to see if it conforms” to the new law, said Scott A. Birnbaum, an employment attorney at Birnbaum & Godkin in Boston.

Nancy M. Cremins, who practices at Gesmer Updegrove in Boston, said passage of the bill “will really force employers to think about what their goals are. I think it’s going to make it incredibly difficult for companies to make good policies.”

With the provision that eases the standards by which employees can recover attorneys’ fees, Bauer anticipates that a new “cottage industry” of lawyers will start taking up non-compete cases on a contingency basis should the bill pass. Those with expertise in non-compete agreements will also likely see a spike in business, he said.

“We become a very hot commodity,” Bauer said.

Since salespeople are typically the largest worker group tied to non-competes, many companies may decide to move to non-solicitation agreements over non-competes given the legal uncertainties, Bauer said, adding that exempting lower-wage workers from non-competes could be detrimental to many businesses.

“The $75,000 cutoff is a little too arbitrary. It’s going to prevent the use of non-competes in a situation where often it’s warranted,” such as laboratory staffers or technicians who, despite their relatively low stature, have access to information that can still harm an employer, Bauer said.

Cremins agreed, adding that start-up companies will also be hurt by the provision. Most use such agreements to protect trade secrets and good will and are the “most susceptible to damage” by employee departures.

“That’s all they have in the beginning, and [they] are going to have to be very careful when hiring,” she said.